Board of Regents of the University System of Georgia, University System Office (Oversight Unit), report on audit of the financial statements for the fiscal year ended June 30, 2007

STATE OF GEORGIA DEPARTMENT OF AUDITS AND ACCOUNTS
I
BOARD OF REGENTS OF THE UNIVERSITY SYSTEM OF GEORGIA UNIVERSITY SYSTEM OFFICE (OVERSIGHT UNIT)
REPORT ON AUDIT OF THE FINANCIAL STATEMENTS FOR THE FISCAL YEAR ENDED JUNE 30, 2007
Russell W. Hinton State Auditor

BOARD OF REGENTS OF THE UNIVERSITY SYSTEM OF GEORGIA UNIVERSITY SYSTEM OFFICE (OVERSIGHT UNIT)
- TABLE OF CONTENTS -

SECTION I

FINANCIAL

INDEPENDENT AUDITOR'S COMBINED REPORT ON BASIC FINANCIAL STATEMENTS AND SUPPLEMENTARY INFORMATION

REQUIRED SUPPLEMENTARY INFORMATION

MANAGEMENT'S DISCUSSION AND ANALYSIS

BASIC FINANCIAL STATEMENTS

EXHIBITS

A STATEMENT OF NET ASSETS

2

B STATEMENT OF REVENUES, EXPENSES AND CHANGES IN NET ASSETS

3

C STATEMENTOFCASHFLOWS

4

D NOTES TO THE FINANCIAL STATEMENTS

5

SUPPLEMENTARY INFORMATION

SCHEDULES

1 BALANCE SHEET (NON-GAAP BASIS) BUDGET FUND

30

2 BUDGET COMPARISON AND SURPLUS ANALYSIS REPORT

(NON-GAAP BASIS) BUDGET FUND

31

3 SCHEDULE OF APPROVED BUDGET

33

4 SCHEDULE OF ALLOTMENTS TO UNITS OF THE UNIVERSITY SYSTEM OF

GEORGIA

34

5 ANALYSIS OF PRIOR YEAR'S SURPLUS FUNDS COLLECTED FROM

INSTITUTIONS AND REDISTRIBUTED TO INSTITUTIONS WITH DEFICITS 38

6 RECONCILIATION OF SALARIES AND TRAVEL

39

SECTION II CURRENT YEAR FINDINGS AND QUESTIONED COSTS SCHEDULE OF FINDINGS AND QUESTIONED COSTS

SECTION I FINANCIAL

Russell W. Hinton
STATE AUDITOR
(404) 656-2174

DEPARTMENT OF AUDITS AND ACCOUNTS
270 Washington Street, S.W., Suite 1-156 Atlanta, Georgia 30334-8400
February 15, 2008

Honorable Sonny Perdue, Governor Members ofthe General Assembly of Georgia Members ofthe Board of Regents ofthe University System of Georgia
and Honorable Erroll B. Davis, Jr., Chancellor
INDEPENDENT AUDITOR'S COMBINED REPORT ON BASIC FINANCIAL STATEMENTS AND SUPPLEMENTARY INFORMATION
Ladies and Gentlemen:
We have audited the accompanying basic financial statements (Exhibits A through D) of the University System Office (Oversight Unit) of the Board of Regents of the University System of Georgia, an organizational unit ofthe State ofGeorgia, as ofand for the year ended June 30, 2007. These financial statements are the responsibility of the University System Office's management. Our responsibility is to express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with auditing standards generally accepted in the United States ofAmerica. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
As discussed in Note 1, the financial statements of the University System Office are intended to present the financial position and changes in financial position and cash flows ofonly that portion of the business-type activities of the State of Georgia that is attributable to the transactions of the University System Office. They do not purport to, and do not, present fairly the financial position and changes in financial position and cash flows of the State of Georgia, in conformity with accounting principles generally accepted in the United States of America.

07ARL-62

In our opinion, the basic financial statements referred to above present fairly, in all material respects, the financial position of the University System Office as of June 30, 2007, and its changes in financial position and cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America.
Management's Discussion and Analysis is not a required part ofthe basic financial statements but is required supplementary information required by accounting principles generally accepted in the United States ofAmerica. We have applied certain limited procedures, which consisted principally of inquiries ofmanagement regarding the methods ofmeasurement and presentation ofthis required supplementary information. However, we did not audit this information and express no opinion on it.
Our audit was conducted for the purpose of forming an opinion on the basic financial statements of the University System Office taken as a whole. The accompanying supplementary information (Schedules 1 through 6) is presented for purposes ofadditional analysis and is not a required part of the basic financial statements. Such information has been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, is fairly stated in all material respects in relation to the basic financial statements taken as a whole.
Respectfully submitted,
~LO~
Russell W. Hinton, CPA, CGFM State Auditor
RWH:as 07ARL-62

REQUIRED SUPPLEMENTARY INFORMATION

UNIVERSITY SYSTEM OFFICE
Management's Discussion and Analysis
Introduction
The University System Office of Georgia's Board of Regents was created in 1931 as part of a reorganization of Georgia's state government. With this act, public higher education in Georgia was unified for the first time under a single governing and management authority. The governor appoints members to the Board, who each serve seven years. Today the Board of Regents is composed of 18 members, five of whom are appointed from the state-at-large, and one from each of the 13 congressional districts. The Board elects a chancellor who serves as the chief executive officer of the University System. The Board oversees 35 institutions: four research institutions, two regional universities, 13 state universities, seven state colleges, and nine two-year colleges. In addition, one marine research institute is governed by the Board. These institutions enroll nearly 260,000 students and employ more than 9,000 faculty and 35,000 employees to provide teaching and related services to students and the communities in which they are located.
Overview ofthe Financial Statements and Financial Analysis
The University System Office is proud to present its financial statements for fiscal year 2007. The emphasis of discussions about these statements will be on current year data. There are three financial statements presented: the Statement of Net Assets; the Statement of Revenues, Expenses and Changes in Net Assets; and the Statement of Cash Flows. This discussion and analysis of the University System Office's financial statements provides an overview of its financial activities for the year. Comparative data is provided for fiscal year 2007 and fiscal year 2006.
Statement ofNet Assets
The Statement of Net Assets presents the assets, liabilities and net assets of the University System Office as of the end of the fiscal year. The Statement of Net Assets is a point-of-time financial statement. The purpose of the Statement of Net Assets is to present to the readers of the financial statements a fiscal snapshot of the University System Office. The Statement of Net Assets presents end-of-year data concerning assets (current and noncurrent), liabilities (current and noncurrent), and net assets (assets minus liabilities). The difference between current and noncurrent assets will be discussed in the Notes to the Financial Statements.
From the data presented, readers of the Statement of Net Assets are able to determine the assets available to continue the operations of the University System Office. They also are able to determine how much the University System Office owes vendors.
Finally, the Statement of Net Assets provides a picture of the net assets (assets minus liabilities) and their availability for expenditure by the University System Office. Net assets are divided into three major categories. The first category, invested in capital assets, net of debt, provides the University System Office's equity in property, plant and equipment. The next asset category is restricted net assets, which is divided into two categories, nonexpendable and expendable. The corpus of nonexpendable restricted resources is available only for investment purposes.
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Expendable restricted net assets are available for expenditure by the University System Office but must be spent for purposes as determined by donors and/or external entities that have placed time or purpose restrictions on the use of the assets. The final category is unrestricted net assets. Unrestricted net assets are available to the University System Office for any lawful purpose of the University System Office.

Statement ofNet Assets, Condensed

June 30, 2007

June 30, 2006

Assets Current Assets Capital Assets, Net Other Assets

$ 163,749,761 38,074,946 3,612,043

$ 177,749,330 33,352,309 3,612.043

Total Assets

$ 205,436.750

$ 214.713.682

Liabilities Current Liabilities Noncurrent Liabilities

$ 149,109,263 25,022.843

$ 166,946,479 23,484,463

Total Liabilities

$ 174,132.106

$ 190,430.942

Net Assets Invested in Capital Assets, Net of Debt Restricted - Nonexpendable Restricted - Expendable Unrestricted

$ 9,016,623 3,612,043 10,554,442 8,121.536

$ 7,087,350 3,612,043 8,057,131 5,526,216

Total Net Assets

$ 31,304,644

$ 24,282,740

The total assets of the University System Office decreased by $9,276,932, which was primarily due to a decrease in cash and investments related to the Investment Pool. The Short-Term Fund experienced a decrease of $7,490,747 for the year, the Balanced Income Fund an increase of $158,171, the Legal Fund an increase of $49,804, the Total Return Fund a decrease of $5,413,936 and the Diversified Fund a decrease of $2,391,920. The fund decreases are primarily related to transfers to the Diversified Fund for Foundations. These decreases were partially offset by a $4,722,637 increase in capital assets, net of accumulated depreciation.

The total liabilities for the year decreased by $16,298,836. Current liabilities decreased $17,837,216 (10.7%), primarily due to the reduction in the Investment Pool described above in the asset section and a $1,359,404 (38.3%) increase in the current portion of capital lease obligations. Noncurrent liabilities increased $1,538,380 (6.6%), primarily due to a $1,433,960 (6.3%) increase in the noncurrent portion of capital lease obligations. The combination of the decrease in total assets of $9,276,932 and the decrease in total liabilities of$16,298,836 yields an increase in total net assets of $7,021,904. The increase in net assets is primarily related to an increase in restricted, expendable net assets of $2,497,311, due to increased grant activity, an increase in unrestricted net assets of $2,595,320, and an increase in net assets invested in capital assets, net of debt of $1,929,273.

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Statement ofRevenues, Expenses and Changes in Net Assets

Changes in total net assets as presented on the Statement of Net Assets are based on the activity presented in the Statement of Revenues, Expenses and Changes in Net Assets. The purpose of the statement is to present the revenues received by the University System Office, both operating and nonoperating, and the expenses paid by the University System Office, operating and nonoperating, and any other revenues, expenses, gains and losses generated or incurred by the University System Office. Operating revenues are received for providing goods and services to the various customers and constituencies of the University System Office. Operating expenses are those expenses incurred to acquire or produce the goods and services provided in return for the operating revenues, and to execute the mission of the University System Office. Nonoperating revenues are revenues received for which goods and services are not provided. For example, state appropriations are nonoperating because they are provided by the Legislature to the University System Office without the Legislature directly receiving commensurate goods and services for those revenues. Nonoperating expense is comprised of items such as interest expense related to capital acquisitions.

Statement of Revenues, Expenses and Changes in Net Assets, Condensed

June 30, 2007

June 30, 2006

Operating Revenues Operating Expenses

$ 323,192,952 472,882,393

$ 289,538,962 437,363,775

Operating Loss

$ -149,689,441

$ -147,824,813

Nonoperating Revenues and Expenses

152,780,956

144,751,553

Income (Loss) Before Other Revenues, Expenses, Gains or Losses

$ 3,091,515

$ -3,073,260

Other Revenues, Expenses, Gains or Losses

3,930,389

Special Item

47,612

Increase (Decrease) in Net Assets

$ 7,021,904

$ -3,025,648

Net Assets at Beginning of Year

24,282,740

27,308,388

Net Assets at End of Year

$ 31,304,644

$ 24,2821740

The Statement of Revenues, Expenses and Changes in Net Assets reflects a positive year, as demonstrated by an increase in the net assets of $7,021,904 at the end of the year. Highlights of the information presented on the Statement of Revenues, Expenses and Changes in Net Assets are provided in the following sections.

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Revenue By Source For The Years Ended June 30, 2007 and June 30, 2006

June 30, 2007

June 30. 2006

Operating Revenue Grants and Contracts Sales and Services Other

$ 17,487,147 23,670,772
282,035,033

$ 12,111,050 21,304,813
256,123,099

Total Operating Revenue

$ 323,192,952

$ 289,538,962

Nonoperating Revenue State Appropriations Grants and Contracts Investment Income Other

$ 151,241,538 1,314,311 1,539,582 14,230

$ 141,686,202 2,829,039 708,239 668,299

Total Nonoperating Revenue

$ 154,109,661

$ 145,891,779

Special Items

$

47,612

Capital Grants and Gifts State

$ 3,930,389

Total Revenues

$ 481,233,002

$ 435A78,353

Total operating revenue increased $33,653,990 (11.6%) in fiscal year 2007. Grants and contracts revenue increased $5,376,097 (44.4%), primarily due to funding increases in the National Foundation on the Arts and Humanities, Partnership for Reform in Science and Mathematics (PRISM), U. S. Department of Education (DOE), National Science Foundation (NSF) and National Aeronautics and Space Administration (NASA) grants. Sales and service revenues increased $2,365,959 (11.1 %), primarily due to increased billings for Oracle $1,156,019 and PeopleSoft $1,759,281 related to increased product usage, and was partially offset by decreased billings for GALILEO $642,668. Other operating revenues increased $25,911,934 (10.1%), primarily due to increased premiums for health insurance related to rising healthcare provider costs.

Nonoperating revenues increased $8,217,882 (5.6%), primarily due to a $9,555,336 (6.7%) increase in State Appropriations and an $831,343 ( 117.4%) increase in investment income, which were partially offset by a $1,514,728 (53.5%) decrease in Library grant nonoperating revenue and a $654,069 (98.1 %) decrease in other nonoperating revenue that was due to a nonrecurring capital transaction that occurred in fiscal year 2006.

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Expenses (By Functional Classification) For The Years Ended June 30, 2007 and June 30, 2006

June 30, 2007

June 30, 2006

Operating Expenses Instruction Research Public Service Academic Support Student Services Institutional Support Scholarships and Fellowships Unallocated Expenses

$ 3,970,782 385,005
99,536,846 20,697,178
280,625 347,780,221
231,736

$ 1,264,753 138,251
90,871,953 18,977,612
279,542 324,974,952
164,410 692,302

Total Operating Expenses

$ 472,882,393

$ 437,363,775

Nonoperating Expenses Interest Expense (Capital Assets)

1,328,705

1,140,226

Total Expenses

$ 474,211,098

$ 438,504.001

Operating expenses increased $35,518,618 (8.1 %) in fiscal year 2007. Operating expense increases were primarily related to increased health insurance expense of $19,772,311, increased grant and contract nonsalary expenses of $4,920,875, increased library material purchases of $3,002,103, increased repairs and maintenance expense for libraries of $2,404,206, increased compensation and employee benefits due to higher costs of health insurance and salary increases averaging 4% effective January 1, 2007 of $2,276,230, $1,384,281 increase for IT Consultants related to the planned PeopleSoft upgrade, $792,048 for eminent scholar support, increased depreciation expense of $567,725 and increased rent of $373,284. Nonoperating expense increased $188,479 (16.5%), and is composed of interest expense related to capital leases.

Statement ofCash Flows

The final statement presented by the University System Office is the Statement of Cash Flows. The Statement of Cash Flows presents detailed information about the cash activity of the University System Office during the year. The statement is divided into five parts. The first part deals with operating cash flows and shows the net cash used by the operating activities of the University System Office. The second section reflects cash flows from noncapital financing activities. This section reflects the cash received and spent for nonoperating, noninvesting and noncapital financing purposes. The third section deals with cash flows from capital and related financing activities. This section deals with the cash used for the acquisition and construction of capital and related items. The fourth section reflects the cash flows from investing activities and shows the purchases, proceeds and interest received from investing activities. The fifth section reconciles the net cash used to the operating income or loss reflected on the Statement of Revenues, Expenses and Changes in Net Assets.

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Cash Flows for the Years Ended June 30, 2007 and 2006, Condensed

June 30. 2007

June 30. 2006

Cash Provided (Used) By: Operating Activities Noncapital Financing Activities Capital and Related Financing Activities Investing Activities

$ -142,474,649 142,507,019 -6,686,361 393,594

$ -140,035,364 129,165,845 -4,147,545 5,296,660

Net Change in Cash Cash, Beginning of Year

$ -6,260,397 72,479,021

$ -9,720,404 82,199.425

Cash, End of Year

$ 66,218,624

$ 72,479,021

Capital Assets

In fiscal year 2006, the Georgia Public Telecommunications Commission ("the Commission") transferred to the University System Office other property and equipment located at its tower sites throughout the State through an intergovernmental agreement to the University System Office. In fiscal year 2007, additional land and equipment was transferred to the University System Office under this arrangement. The value of the land and equipment transferred in fiscal year 2007 was $200,000 and $3,730,389, respectively. The total value of the land and equipment transferred is $25,027,755 and the accumulated depreciation is $21,079,602, for a net value of $3,948,153.

The transfer was required for the Commission to obtain the use of five-year, general obligation bonds sold in the University System Office name on behalf of the Commission. The Commission, an authority created after 1967, cannot have bonds sold on its behalf. An intergovernmental agreement has been executed between the Commission and the University System Office that allows the Commission to utilize these funds for the digital conversion of the towers and antennae. The bonds were sold September 7, 2005, and the agreement with the University System Office expires at the end of the five-year period when the bonds are paid in full. All equipment will be transferred back to the ownership of the Commission at the expiration of the intergovernmental agreement.

For additional information concerning Capital Assets, see Notes 1, 4, 5 and 6 in the Notes to the Financial Statements.

Health and Dental Insurance

The University System Office is the fiscal agent for health and dental insurance for all the institutions in the University System of Georgia. The financial information for all related health and dental insurance transactions is included on the face of these financial statements, including the liability for claims incurred but not reported. The summary information regarding revenues, expenses and the related liability for fiscal year 2007 is listed below.

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Beginning Net Assets July 1, 2006

$ -1,916, 192

Plus Revenues Fiscal Year 2007 Premium Receipts Adjustment to Fair Market Value
Less Expenses Fiscal Year 2007 Claim Payments Change in Incurred But Not Reported
Ending Net Assets June 30, 2007

$ 280,071,658 295,034
$ -280,280,397 836,182

280,366,692
-279.444,215 $ -993.715

The crediting of premiums to University System of Georgia institutions by action of the Board of Regents to address a mid-year budget reduction in fiscal year 2005 resulted in reduced premium collections in that year, and accounts for the negative net assets balance.

Long-Term Liabilities

The University System Office had Long-Term Liabilities of $31,727,312, of which $6,704,469 was reflected as current liabilities at June 30, 2007.

For additional information concerning Long-Term Liabilities, see Notes 1 and 5 in the Notes to the Financial Statements.

Economic Outlook

The University System Office is not aware of any currently known facts, decisions or conditions that are expected to have a significant effect on the financial position or results of operations during fiscal year 2007 beyond those unknown variations having a global effect on virtually all types of business operations. The University System Office's overall financial position is strong. Even with constrained funding, the University System Office was able to generate a modest increase in net assets. The University System Office expects that fiscal year 2008 will not vary significantly and will maintain a close watch over resources to maintain the University System Office's ability to react to internal and external issues that arise.

Usha Ramachandran, Interim Vice Chancellor for Fiscal Affairs/Treasurer The Board of Regents University System Office

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BASIC FINANCIAL STATEMENTS - 1-

BOARD OF REGENTS OF THE UNIVERSITY SYSTEM OF GEORGIA UNIVERSITY SYSTEM OFFICE (OVERSIGHT UNIT) STATEMENT OF NET ASSETS JUNE 30, 2007

EXHIBIT"A"

ASSETS
Current Assets Cash and Cash Equivalents Investments Accounts Receivable, Net (Note 3) Federal Financial Assistance Other
Total Current Assets
Noncurrent Assets Investments Capital Assets, Net (Note 4)
Total Noncurrent Assets
Total Assets
LIABILITIES
Current Liabilities Accounts Payable Benefits Payable Deposits Held for Other Organizations Lease Purchase Obligations Compensated Absences
Total Current Liabilities
Noncurrent Liabilities Lease Purchase Obligations Compensated Absences
Total Noncurrent Liabilities
Total Liabilities
NET ASSETS
Invested in Capital Assets, Net of Related Debt Restricted for:
Nonexpendable Expendable Unrestricted

$ 66,218,624
96,217,427
482,885 830,825
$ 163,749,761

$

3,612,043

38,074,946

$ 41,686,989

$ 205,436, 750

$

19,299

27,147,291

115,238,204

4,913,250

1,791,219

$ 149,109,263

$ 24,145,073
877 770
$ 25,022,843
$ 174,132,106

$

9,016,623

3,612,043 10,554,442
8,121,536

Total Net Assets

$ 31,304,644

The notes to the financial statements are an integral part of this statement. -2-

BOARD OF REGENTS OF THE UNIVERSITY SYSTEM OF GEORGIA UNIVERSITY SYSTEM OFFICE (OVERSIGHT UNIT)
STATEMENT OF REVENUES, EXPENSES AND CHANGES IN NET ASSETS YEAR ENDED JUNE 30, 2007

EXHIBIT"B"

OPERATING REVENUES
Grants and Contracts Federal Other
Sales and Services Other Operating Revenues
Total Operating Revenues
OPERATING EXPENSES
Salaries Staff
Employee Benefits Travel Scholarships and Fellowships Utilities Supplies and Other Services Depreciation
Total Operating Expenses
Operating Income (Loss)
NONOPERATING REVENUES (EXPENSES)
State Appropriations Grants and Contracts
Federal Other Interest and Other Investment Income Interest Expense Other Nonoperating Revenues
Net Nonoperating Revenues
Income (Loss) Before Other Revenues, Expenses, Gains, or Losses
Capital Grants and Gifts State
Increase (Decrease) in Net Assets
Net Assets - Beginning of Year

$ 17,346,251 140,896
23,670,772 282,035,033
$ 323,192,952

$ 23,657,187 5,842,874 665,552 231,736
23,060,064 411,569,185
7,855,795
$ 472,882,393
$ -149,689 441

$ 151,241,538

64,663 1,249,648 1,539,582 -1,328,705
14,230

$ 152,780,956

$

3,091,515

3,930,389

$

7,021,904

24,282,740

Net Assets - End of Year

$ ==3=1,=30=4=,6=44=

The notes to the financial statements are an integral part of this statement. -3-

BOARD OF REGENTS OF THE UNIVERSITY SYSTEM OF GEORGIA UNIVERSITY SYSTEM OFFICE (OVERSIGHT UNIT) STATEMENT OF CASH FLOWS YEAR ENDED JUNE 30, 2007
CASH FLOWS FROM OPERATING ACTIVITIES Grants and Contracts Sales and Services Payments to Suppliers Payments to Employees Payments for Scholarships and Fellowships Other Receipts (Payments)
Net Cash Provided (Used) by Operating Activities
CASH FLOWS FROM NONCAPITAL FINANCING ACTIVITIES State Appropriations Agency Funds Transactions Gifts and Grants Received for Other than Capital Purposes Other Nonoperating Receipts
Net Cash Flows Provided (Used) by Noncapital Financing Activities
CASH FLOWS FROM CAPITAL AND RELATED FINANCING ACTIVITIES Proceeds from Sale of Capital Assets Purchases of Capital Assets Principal Paid on Capital Debt and Leases Interest Paid on Capital Debt and Leases
Net Cash Provided (Used) by Capital and Related Financing Activities
CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from Sales and Maturities of Investments Interest on Investments
Net Cash Provided (Used) by Investing Activities
Net Increase (Decrease) in Cash
Cash and Cash Equivalents - Beginning of Year
Cash and Cash Equivalents - End of Year
RECONCILIATION OF OPERATING LOSS TO NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES:
Operating Income (Loss) Adjustments to Reconcile Operating Income to Net Cash
Provided (Used) by Operating Activities Depreciation Change in Assets and Liabilities: Receivables, Net Prepaid Items Accounts Payable Benefits Payable Compensated Absences
Net Cash Provided (Used) by Operating Activities
NONCASH ACTIVITY Fixed Assets Acquired by Incurring Capital Lease Obligations Change in Fair Value of Investments Recognized as a Component of Interest Income Gift of Capital Assets Reducing Proceeds of Capital Grants and Gifts
The notes to the financial statements are an integral part of this statement.
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EXHIBIT"C"

$

17,471,780

23,818,838

-442,046,884

-23,363,393

-231,736

281,876,746

$ -142,474,649

$ 151,241,538 -10,066,035 1,314,311 17 205
$ 142,507,019

$

1,174,426

-1,452,524

-5,079,558

-1,328,705

$

-6,686,361

$

244,212

149 382

$

393,594

$

-6,260,397

72,479,021

$ -149,689,441
7,855,795 -25,588 3,865 -870
-836,182 217 772
$ -142,474,649
$ ===7'=,8=72,.;,9;;;;2;;.,2 $ ==.;,1,53;;;;90;;i;,2=0=0 $ ==-.;:.3,59;;;;30.;i;,3;;;;8;;;,9

BOARD OF REGENTS OF THE UNIVERSITY SYSTEM OF GEORGIA UNIVERSITY SYSTEM OFFICE (OVERSIGHT UNIT) NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2007

EXHIBIT"D"

NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS The Board of Regents of the University System of Georgia, an organizational unit of the State of Georgia, was created by the "Reorganization Act of 1931." With this act, public higher education in Georgia was unified for the first time under a single governing and management authority. The governor appoints members to the Board, who each serve seven years. The Board of Regents currently is composed of 18 members, five of whom are appointed from the state-at-large, and one from each of the 13 congressional districts. The Chancellor is appointed by the Board of Regents as chief executive officer and serves at the pleasure of the Board. The Board oversees 35 institutions (four research institutions, two regional universities, 13 state universities, seven state colleges, and nine two-year colleges), Skidaway Institute of Oceanography and an administrative central office (the University System Office). These institutions enroll nearly 260,000 students and employ more than 9,000 faculty and 35,000 employees to provide teaching and related services to students and the communities in which they are located.
REPORTING ENTITY The University System Office is the administrative central office for the thirty-five (35) State supported, member institutions of higher education in Georgia and one marine research institute, which comprise the University System of Georgia, an organizational unit of the State of Georgia. The accompanying financial statements reflect the operations of the University System Office as a separate reporting entity.
The Board of Regents has constitutional authority to govern, control and manage the University System of Georgia. This authority includes, but is not limited to, the power to designate management, the ability to significantly influence operations, the authority to control institutions' budgets, the power to determine allotments of State funds to member institutions and the authority to prescribe accounting systems and administrative policies for member institutions. The University System Office does not have authority to retain unexpended State appropriations (surplus) for any given fiscal year. Accordingly, the University System Office is considered an organizational unit of the Board of Regents of the University System of Georgia reporting entity for financial reporting purposes because of the significance of its legal, operational and financial relationships with the Board of Regents as defined in Section 2100 of the Governmental Accounting Standards Board (GASB) Codification of Governmental Accounting and Financial Reporting Standards.
Legally separate, tax exempt organizations whose activities primarily support units of the University System of Georgia, which are organizational units of the State of Georgia, are considered potential component units of the State. See Note 12 for additional information.

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BOARD OF REGENTS OF THE UNIVERSITY SYSTEM OF GEORGIA UNIVERSITY SYSTEM OFFICE (OVERSIGHT UNIT) NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2007

EXHIBIT "D"

NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
FINANCIAL STATEMENT PRESENTATION In June 1999, the GASB issued Statement No. 34, Basic Financial Statements and Management Discussion and Analysis for State and Local Governments. This was followed in November 1999 by GASB Statement No. 35, Basic Financial Statements and Management's Discussion and Analysis for Public Colleges and Universities. The State of Georgia implemented GASB Statement No. 34 as of and for the year ended June 30, 2002. As an organizational unit of the State of Georgia, the University System Office also was required to adopt GASB Statements No. 34 and No. 35 as amended by GASB Statements No. 37 and No. 38. The financial statements have been prepared in accordance with generally accepted accounting principles (GAAP) as prescribed by the GASB and are presented as required by these standards to provide a comprehensive, entity-wide perspective of the University System Office's assets, liabilities, net assets, revenues, expenses, changes in net assets, and cash flows, and replaces the fund group perspective previously required.
BASIS OF ACCOUNTING For financial reporting purposes, the University System Office is considered a special-purpose government entity engaged only in business-type activities. Accordingly, the University System Office's financial statements have been presented using the economic resources measurement focus and the accrual basis of accounting, except as noted in the preceding paragraph. Under the accrual basis, revenues are recognized when earned, and expenses are recorded when an obligation has been incurred. All significant intra-system transactions have been eliminated.
The University System Office has the option to apply all Financial Accounting Standards Board (FASB) pronouncements issued after November 30, 1989, unless FASB conflicts with GASB. The University System Office has elected not to apply FASB pronouncements issued after the applicable date.
CASH AND CASH EQUIVALENTS Cash and Cash Equivalents consist of petty cash, demand deposits and time deposits in authorized financial institutions, and cash management pools that have the general characteristics of demand deposit accounts. This includes the State Investment Pool and the Board of Regents Short-Term Investment Pool.
INVESTMENTS The University System Office accounts for its investments at fair value in accordance with GASB Statement No. 31, Accounting and Financial Reporting for Certain Investments and for External Investment Pools. Changes in unrealized gain (loss) on the carrying value of investments are reported as a component of investment income in the Statement of Revenues, Expenses and Changes in Net Assets. The Board of Regents Legal Fund, the Board of Regents Balanced Income Fund, the Board of Regents Total Return Fund, and the Board of Regents Diversified Fund are included under Investments.

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BOARD OF REGENTS OF THE UNIVERSITY SYSTEM OF GEORGIA UNIVERSITY SYSTEM OFFICE (OVERSIGHT UNIT) NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2007

EXHIBIT "D"

NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ACCOUNTS RECEIVABLE Accounts receivable consists of amounts due from the Federal government, state and local governments or private sources, in connection with reimbursement of allowable expenditures made pursuant to the University System Office's grants and contracts, and registrations and licensing fees for the services of the Office of Informational and Instructional Technology. Accounts receivable are recorded net of estimated uncollectible amounts.
NONCURRENTINVESTMENTS Investments that are externally restricted and cannot be used to pay current liabilities are classified as noncurrent assets in the Statement of Net Assets.
CAPITAL ASSETS Capital assets are recorded at cost at the date of acquisition, or at fair market value at the date of donation in the case of gifts. For equipment, the University System Office's capitalization policy includes all items with a unit cost of $5,000 or more, and an estimated useful life of greater than one year. Renovations to buildings, infrastructure and land improvements that exceed $100,000 and significantly increase the value or extend the useful life of the structure are capitalized. Routine repairs and maintenance are charged to operating expense in the year in which the expense was incurred. Depreciation is computed using the straight-line method over the estimated useful lives of the assets, generally 40 to 60 years for buildings, 20 to 25 years for infrastructure and land improvements, 10 years for library books, and 3 to 20 years for equipment. Residual values will generally be 10% of historical costs for infrastructure, buildings and building improvements, and facilities and other improvements.
To obtain the total picture of plant additions in the University System, it is necessary to review the activities of the Georgia State Financing and Investment Commission (GSFIC), an organization that is external to the System. GSFIC issues bonds for and on behalf of the State of Georgia, pursuant to powers granted to it in the Constitution of the State of Georgia and the Act creating the GSFIC. The bonds so issued constitute direct and general obligations of the State of Georgia, to the payment of which the full faith, credit and taxing power of the State are pledged.
For projects managed by GSFIC, the GSFIC retains construction in progress on its books throughout the construction period and transfers the entire project to the University System Office when complete. For projects managed by the University System Office, the University System Office retains construction in progress on its books and is reimbursed by GSFIC. For the year ended June 30, 2007, GSFIC transferred land and equipment for the Georgia Public Telecommunications Commission to the University System Office valued at $200,000 and $3,730,389, respectively.

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BOARD OF REGENTS OF THE UNIVERSITY SYSTEM OF GEORGIA UNIVERSITY SYSTEM OFFICE (OVERSIGHT UNIT) NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2007

EXHIBIT"D"

NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DEPOSITS HELD FOR OTHERS Deposits held for others consist of the external portion of the University System of Georgia's Pooled Investment Fund program and other funds held by the University System Office as an agent for various governments or individuals.
COMPENSATED ABSENCES Employee vacation pay is accrued at year-end for financial statement purposes. The liability and expense incurred are recorded at year-end as compensated absences in the Statement of Net Assets, and as a component of compensation and benefit expense in the Statements of Revenues, Expenses and Changes in Net Assets. The University System Office had accrued liability for compensated absences in the amount of $2,451,218 as of July 1, 2006. For fiscal year 2007, $2,051,027 was earned in compensated absences and employees were paid $1,833,256, for a net increase of $217,771. The ending balance as of June 30, 2007 in accrued liability for compensated absences was $2,668,989.
NONCURRENT LIABILITIES Noncurrent liabilities include liabilities that will not be paid within the next fiscal year; capital lease obligations with contractual maturities greater than one year; and other liabilities that, although payable within one year, are to be paid from funds that are classified as noncurrent assets.
NET ASSETS The University System Office's net assets are classified as follows:
Invested in capital assets, net of related debt: This represents the University System Office's total investment in capital assets, net of outstanding debt obligations related to those capital assets. To the extent debt has been incurred but not yet expended for capital assets, such amounts are not included as a component of invested in capital assets, net of related debt. The term "debt obligations" as used in this definition does not include debt of the GSFIC, as discussed previously in Note 1 - Capital Assets section.
Restricted net assets - nonexpendable: Nonexpendable restricted net assets consist of endowment and similar type funds wherein donors or other outside sources have stipulated, as a condition of the gift instrument, that the principal be maintained inviolate and in perpetuity, and invested for the purpose of producing present and future income, which may be either expended or added to principal. The University System Office may accumulate as much of the annual net income of an institutional fund as is prudent under the standard established by Code Section 4415-7 of the Annotated Code of Georgia.

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BOARD OF REGENTS OF THE UNIVERSITY SYSTEM OF GEORGIA UNIVERSITY SYSTEM OFFICE (OVERSIGHT UNIT) NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2007

EXHIBIT"D"

NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

NET ASSETS Restricted net assets - expendable: Restricted expendable net assets include resources that the University System Office is legally or contractually obligated to utilize in accordance with restrictions imposed by external third parties.

Expendable Restricted Net Assets include the following:

Restricted - E&G and Other Organized Activities

$ 10,554,442

Unrestricted net assets: Unrestricted net assets represent resources derived from student tuition and fees, state appropriations, and sales and services of educational departments and auxiliary enterprises. These resources are used for transactions relating to the educational and general operations of the University System Office, and may be used at the discretion of the governing board to meet current expenses for those purposes, except for unexpended state appropriations (surplus) of $210,614.62. Unexpended state appropriations must be remitted by the University System Office to the Office of Treasury and Fiscal Services.

Unrestricted Net Assets includes the following items that are quasi-restricted by management.

Reserve for Encumbrances Other Unrestricted

$ 5,534,218 2,587,318

Total Unrestricted Net Assets

$ 8,121.536

When an expense is incurred that can be paid using either restricted or unrestricted resources, the University System Office's policy is first to apply the expense towards unrestricted resources, and then towards restricted resources.

INCOME TAXES The University System Office, as a political subdivision of the State of Georgia, is excluded from Federal income taxes under Section 115(1) of the Internal Revenue Code, as amended.

CLASSIFICATION OF REVENUES The University System Office has classified its revenues as either operating or nonoperating revenues in the Statement of Revenues, Expenses and Changes in Net Assets according to the following criteria:

Operating revenues: Operating revenues include activities that have the characteristics of exchange transactions, such as (1) sales and services of educational departments, (2) most Federal, state and local grants and contracts, and (3) University System of Georgia's self insurance receipts.

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BOARD OF REGENTS OF THE UNIVERSITY SYSTEM OF GEORGIA UNIVERSITY SYSTEM OFFICE (OVERSIGHT UNIT) NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2007

EXHIBIT"D"

NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CLASSIFICATION OF REVENUES Nonoperating revenues: Nonoperating revenues include activities that have the characteristics of nonexchange transactions, such as gifts and contributions, and other revenue sources that are defined as nonoperating revenues by GASB No. 9, Reporting Cash Flows of Proprietary and Nonexpendable Trust Funds and Governmental Entities That Use Proprietary Fund Accounting, and GASB No. 34, such as state appropriations and investment income.
NOTE 2: DEPOSITS AND INVESTMENTS
DEPOSITS The custodial credit risk for deposits is the risk that in the event of a bank failure, the University System Office's deposits may not be recovered. Funds belonging to the State of Georgia (and thus the University System Office) cannot be placed in a depository paying interest longer than ten days without the depository providing a surety bond to the State. In lieu of a surety bond, the depository may pledge as collateral any one or more of the following securities as enumerated in the Official Code of Georgia Annotated Section 50-17-59:
1. Bonds, bills, notes, certificates of indebtedness or other direct obligations of the United States or of the State of Georgia.
2. Bonds, bills, notes, certificates of indebtedness or other obligations of the counties or municipalities of the State of Georgia.
3. Bonds of any public authority created by the laws of the State of Georgia, providing that the statute that created the authority authorized the use of the bonds for this purpose.
4. Industrial revenue bonds and bonds of development authorities created by the laws of the State of Georgia.
5. Bonds, bills, certificates of indebtedness, notes or other obligations of a subsidiary corporation of the United States government, which are fully guaranteed by the United States government both as to principal and interest and debt obligations issued by the Federal Land Bank, the Federal Home Loan Bank, the Federal Intermediate Credit Bank, the Central Bank for Cooperatives, the Farm Credit Banks, the Federal Home Loan Mortgage Association and the Federal National Mortgage Association.
6. Guarantee or insurance of accounts provided by the Federal Deposit Insurance Corporation.
The Treasurer of the Board of Regents is responsible for all details relative to furnishing the required depository protection for all units of the University System of Georgia.

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BOARD OF REGENTS OF THE UNIVERSITY SYSTEM OF GEORGIA UNIVERSITY SYSTEM OFFICE (OVERSIGHT UNIT) NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2007

EXHIBIT "D"

NOTE 2: DEPOSITS AND INVESTMENTS
DEPOSITS At June 30, 2007, the carrying value of deposits was $33,454,763 and the bank balance was $23,289,213. Of the University System Office's deposits, $23,189,213 were uninsured. Of these uninsured deposits, $19,346,109 were collateralized with securities held by the financial institution's trust department or agent in the University System Office's name, $3,702,911 were collateralized with securities held by the financial institution, by its trust department or agency, but not in the University System Office's name and $140,193 were uncollateralized.
INVESTMENTS The University System Office serves as fiscal agent for various units of the University System of Georgia and cooperative organizations. The University System Office pools the monies of these organizations with the University System Office's monies for investment purposes. The University System Office cannot allocate pool investments between the internal (University System) and external (cooperative organizations) investment pool portions. The investment pool is not registered with the SEC as an investment company. The fair value of the investments is determined daily. The pool does not issue shares. Each participant is allocated a pro rata share of each investment at fair value along with a pro rata share of the interest that it earns.
The University System Office maintains investment policy guidelines for each pooled investment fund that is offered to qualified University System participants. These policies are intended to foster sound and prudent judgment in the management of assets to ensure safety of capital consistent with the fiduciary responsibility each institution has to the citizens of Georgia and which conforms to the Board of Regents investment policy. All investments must be consistent with donor intent, Board of Regents policy, and applicable federal and state laws.
Units of the University System of Georgia and their affiliated organizations may participate in the Pooled Investment Fund program. The overall character of the pooled fund portfolio should be one of above average quality, possessing at most an average degree of investment risk.
Short-Term Fund The Short-Term fund provides a current return and stability of principal while affording a means of overnight liquidity for projected cash needs. The investment maturities of the fund will range between daily and two years.
Legal Fund The Legal fund provides an opportunity for greater income and modest principal growth to the extent possible with the securities allowed under Georgia Code 50-17-59 and 50-17-63. The average maturity of this fund will typically range between five and 10 years, with a maximum of thirty years for any individual investment. The overall character of the portfolio should be one of treasury and agency quality, possessing virtually no degree of financial risk.

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BOARD OF REGENTS OF THE UNIVERSITY SYSTEM OF GEORGIA UNIVERSITY SYSTEM OFFICE (OVERSIGHT UNIT) NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2007

EXHIBIT"D"

NOTE 2: DEPOSITS AND INVESTMENTS
INVESTMENTS Balance Income Fund The Balanced Income fund is designed to be a vehicle to invest funds that are not subject to the state regulations concerning investing in equities. This fund is comprised of fixed income, equity and cash equivalent instruments.
The equity allocation range shall be between 30% and 40%, with a target of 35% of the total portfolio. The fixed income (bond) portion of the portfolio shall be between 60% and 70%, with a target of 65% of the total portfolio. Reserves for contingencies and stock and bond purchases are expected to comprise the balance of the fund. Reserves and excess income should be invested at all times in practical amounts. Reserves can be invested in high quality institutional money market mutual funds or other high quality, short-term instruments.
Total Return Fund The Total Return fund is another pool designed to be a vehicle to invest funds that are not subject to state regulations concerning investing in equities. This pool offers the greatest percentage of overall equity exposure, with well over half of the funds typically invested in equities.
The equity allocation range shall be between 60% and 70%, with a target of 65% of the total portfolio. The fixed income (bond) portion of the portfolio shall be between 30% and 40%, with a target of 35% of the total portfolio. Reserves for contingencies and stock and bond purchases are expected to comprise the balance of the fund. Reserves and excess income should be invested at all times in practical amounts. Reserves can be invested in high quality institutional money market mutual funds or other high quality, short-term instruments.
Diversified Fund The Diversified fund is designed to gain further diversification and increase exposures to assets that have lower correlation to equity and bond markets by utilizing alternative asset classes. In addition, this fund is constructed to build an optimal portfolio where return is increased and risk is reduced.
The equity allocation range shall be between 50% and 75% of the portfolio. The fixed income (bond) portion of the portfolio shall be between 20% and 40%. The portfolio may also consist of Hedge Funds, Real Estate and Venture Capital/Private Equity/Post Venture Capital.
Hedge Funds - The investment approach to this asset class is to use a multi-strategy, multimanager fund of hedge funds. The Board of Regents believes that a fund of fund strategy will provide the best access to a highly diversified pool of hedge fund strategies and managers.
Real Estate - The Board of Regents' approach to investing in this asset class is to use real estate investment trusts (REITs). REITs are more liquid than owning commercial real estate and diversification can be achieved by purchasing a mutual fund.
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BOARD OF REGENTS OF THE UNIVERSITY SYSTEM OF GEORGIA UNIVERSITY SYSTEM OFFICE (OVERSIGHT UNIT) NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2007

EXHIBIT"D"

NOTE 2: DEPOSITS AND INVESTMENTS

INVESTMENTS Diversified Fund Venture Capital/Private Equity/Post Venture Capital - This asset class is the riskiest and most volatile permitted investment opportunity. This asset should be considered as an additional diversification investment strategy due to the low correlation with stock and bonds.

Reserves for contingencies and stock and bond purchases are expected to comprise the balance of the fund. Reserves and excess income should be invested at all times in practical amounts. Reserves can be invested in high quality institutional money market mutual funds or other high quality, short-term instruments.

The University System Office's investments as of June 30, 2007 are presented below. All investments are presented by investment type and debt securities are presented by maturity.

Investment Type
Debt Securities U. S. Treasuries U. S. Agencies Explicitly Guaranteed Implicitly Guaranteed Mutual Bond Fund
Other Investments Equity Mutual Funds Equity Securities - Domestic Real Estate Investment Fund
Total Investments

Fair Value

Investment Maturi!)'.

Less Than

1-5

1 Year

Years

6 - 10 Years

$ 4,289,719

$ 2,423,128 $ 1,866,591

2,917,124 $ 1,080,365

43,094,773

21,364,656

24,340,786

1,836,759 21,536,471 22,270,347

193,646 2,070,439

$ 74,642,402 $ 22,445.021 $ 48.066.705 $ 4 130.676

43,159,697 10,233,816 4,557,415
$ 132.523,330

Interest Rate Risk Interest rate risk is the risk that changes in interest rates of debt investments will adversely affect the fair value of an investment. The University System Office's policy for managing interest rate risk is contained in the investment policy guidelines for the various pooled investment funds:

1. In the Short-Term fund, the average maturity of the fixed income portfolio shall not exceed three years.

2. In all the other pooled funds, the average maturity of the fixed income portfolio shall not exceed ten years.

3. Fixed income investments shall be limited to U. S. Treasury government agency and corporate debt instruments having minimum investment grade credit ratings of BAA by Moody's and/or Standard and Poors.

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BOARD OF REGENTS OF THE UNIVERSITY SYSTEM OF GEORGIA UNIVERSITY SYSTEM OFFICE (OVERSIGHT UNIT) NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2007

EXHIBIT"D"

NOTE 2: DEPOSITS AND INVESTMENTS
INVESTMENTS 4. The fixed income target allocation is defined in the investment policy guidelines for each pooled investment fund. These targets may be modified upon recommendation of the fund's investment manager and approval by the Board of Regents.
Custodial Credit Risk Custodial credit risk for investments is the risk that, in the event of a failure of the counterparty to a transaction, the college/university will not be able to recover the value of the investment or collateral securities that are in the possession of an outside party. The University System Office's policy for managing custodial credit risk for investments is:
1. The University System Office has appointed a Federally regulated banking institution as custodian. The custodian performs its duties to the standards of a professional custodian and is liable to the University System Office for claims, losses, liabilities and expenses arising from its failure to exercise ordinary care, its willful misconduct, or its failure to otherwise act in accordance with the contract.
2. All securities transactions are to be settled on a delivery vs. payment basis through an approved depository institution such as the Depository Trust Company or the Federal Reserve.
3. Repurchase agreements are to be collateralized by United States Treasury securities at 102% of the market value of the investment at all times.
At June 30, 2007, $60,535,432 of the University System Office's applicable investments were uninsured and held by the investment's counterparty in the University System Office's name.
Credit Quality Risk Credit quality risk is the risk that an issuer or other counterparty to an investment will not fulfill its obligations. The University System Office's policy for managing credit quality risk is contained in the investment policy guidelines for the various pooled investment funds:
1. In all pooled funds except the Diversified Fund, all debt issues must be investment grade with ratings of at least BAA by Moody's and Standard and Poors at the time of purchase.
2. The Diversified Fund is permitted to invest in non-investment grade debt issues up to a limit of 15% of the entire portfolio.
3. The portfolios shall be well diversified as to issuer and maturity.

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BOARD OF REGENTS OF THE UNIVERSITY SYSTEM OF GEORGIA UNIVERSITY SYSTEM OFFICE (OVERSIGHT UNIT) NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2007

EXHIBIT "D"

NOTE 2: DEPOSITS AND INVESTMENTS

INVESTMENTS The investments subject to credit quality risk are reflected below:

Fair Value

AAA

Unrated

Related Debt Investments U.S. Agencies Mutual Bond Fund

$ 43,094,773 $ 24,340,786

598,878 $ 42,495,895 24,340,786

$ 67,435,559 $ 598,878 $ 66,836,681

Concentration of Credit Risk Concentration of credit risk is the risk of loss attributed to the magnitude of a government's investment in a single issuer. The University System Office's policy for managing concentration of credit risk is to diversify investments to the extent that any single issuer shall be limited to 5% of the market value in a particular investment fund. The following U. S. Agency investments exceeded 5% of the total reported investment amount as of June 30, 2007:

Investment

Amount

% of Total

Federal National Mortgage Association

$29,977,003

23%

Federal Home Loan Mortgage Corporation

$12,518,892

9%

Condensed financial information for the investment pool is as follows:

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BOARD OF REGENTS OF THE UNIVERSITY SYSTEM OF GEORGIA UNIVERSITY SYSTEM OFFICE (OVERSIGHT UNIT} NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2007

EXHIBIT"D"

NOTE 2: DEPOSITS AND INVESTMENTS

INVESTMENTS

Statement ofNet Assets - June 30, 2007

Assets

Cash Investments Interest Receivable

Net Assets Held in Trust for Pool Participants
Internal Portion External Portion

Statement of Net Assets - June 30, 2007 Revenues
Interest Income Net Increase (Decrease) in Fair Value oflnvestments Total Revenues Expenses
Operating Expenses Administrative Expenses
Net Increase (Decrease) in Assets Resulting from Operations Distribution to Participants Capital Transactions Total Increase (Decrease) in Net Assets Net Assets July 1, 2006
Net Assets June 30, 2007

$ 3,586,128 126,295,038 226,590
$ 130,107,756
$ 15,248,383 114,859.373
$ 130,107.756
$ 4,720,065 8,799.549
$ 13,519,614
358.794 $ 13,160,820
-41,532, 793 13,283.345 $ -15,088,628 145,196.384 $ 130,107,756

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BOARD OF REGENTS OF THE UNIVERSITY SYSTEM OF GEORGIA UNIVERSITY SYSTEM OFFICE (OVERSIGHT UNIT) NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2007

EXHIBIT "D"

NOTE 3: ACCOUNTS RECEIVABLE

Accounts receivable consisted of the following at June 30, 2007:

Federal Financial Assistance Other

$ 482,885 870.542

$ 1,353,427

Less: Allowance for Doubtful Accounts

39,717

Net Accounts Receivable

$ 1,313,710

NOTE 4: CAPITAL ASSETS

Changes in capital assets for the year ended June 30, 2007 are as follows:

Beginning Balance July I, 2006

Additions

Reductions

Ending Balance June 30, 2007

Capital Assets, Not Being Depreciated:

Land

$

Capitalized Collections

2,276,877 $ 10 000

200,000 $

0 $ 2,476,877 10000

Total Capital Assets Not Being Depreciated

$ 2,286,877 $

200,000 $

0 $ 2,486,877

Capital Assets, Being Depreciated: Building and Building Improvements $ Equipment Capital Leases

728,407 48,964,174 $ 35,605,269

$ 5,182,913 7,872,922

728,407 $ 1,652,813

0 52,494,274 43,478,191

Total Assets Being Depreciated

$ 85,297,850 $ 13,055,835 $ 2,381,220 $ 95,972,465

Less: Accumulated Depreciation: Building and Building Improvements $ Equipment Capital Leases

49,167 $ 45,107,865
9,075,385

3,036 $ 2,139,841 5,712,918

52,203 $ 1,651,613

0 45,596,093 14,788,303

Total Accumulated Depreciation

$ 54,232,417 $ 7,855,795 $ 1,703,816 $ 60,384,396

Total Capital Assets, Being Depreciated,

Net

$ 31,065,433 $

5,200,040 $

677 404 $ 35,588,069

Capital Assets, Net

$ 33 352,310 $ 5 400,040 $

6:Z:Z,404 $ 38,014,246

In fiscal year 2006, the Georgia Public Telecommunications Commission ("the Commission") transferred to the University System Office other property and equipment located at its tower sites throughout the State through an intergovernmental agreement. In fiscal year 2007, additional land and equipment was transferred to the University System Office under this arrangement. The value of the land and equipment transferred in fiscal year 2007 was $200,000 and $3,730,389, respectively; in addition, $1,239,169 in equipment disposals also were recorded.

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BOARD OF REGENTS OF THE UNIVERSITY SYSTEM OF GEORGIA UNIVERSITY SYSTEM OFFICE (OVERSIGHT UNIT) NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2007

EXHIBIT"D"

NOTE 4: CAPITAL ASSETS

The total value of the land and equipment associated with this intergovernmental agreement is $25,027,755 and the accumulated depreciation is $21,079,602, for a net value of $3,948,153. The current year assets additions related to this intergovernmental agreement are included on the Statement of Revenues, Expenses and Changes in Net Assets as Capital Grants and Gifts, State and on the Statement of Cash Flows as Noncash Investing, Noncapital Financing, and Capital and Related Financing Transactions as Gift of Capital Assets Reducing Proceeds of Capital Grants and Gifts as $3,930,389.

NOTE 5: LONG-TERM LIABILITIES

Long-term liability activity for the year ended June 30, 2007 was as follows:

Leases Lease Obligations
Other Liabilities Compensated Absences
Total Long-Term Liabilities

Beginning Balance Jul)'. 1, 2006

Additions

Reductions

Ending Balance June 30, 2007

Current Portion

$ 26,264,959 $ 7,872,922 $ 5,079,558 $ 29,058,323 $ 4,913,250

2,451,218 $ 28716177 $

2,051,027 9.923 949 $

1,833,256

2,668,989

6 912.814 $ 31.727.312 $

1,791,219 6 704.469

NOTE6: LEASE OBLIGATIONS

The University System Office is obligated under various operating leases and installment purchase agreements for the acquisition of real property and equipment.
CAPITAL LEASES The University System Office has 16 capital leases payable in monthly installments with terms expiring in various years between 2010 and 2025. Expenditures for fiscal year 2007 were $6,408,263, of which $1,328,705 represented interest. Total principal paid on capital leases was $5,079,558 for the fiscal year ended June 30, 2007. Interest rates range from 3.8% to 4.88%. The following is a summary of the carrying values of assets held under capital lease at June 30, 2007:

Buildings Equipment

$ 11,992,236 16,697,652

Total Assets Held Under Capital Lease

$ 28,689,888

Certain capital leases provide for renewal and/or purchase options. Generally, purchase options at bargain prices of one dollar are exercisable at the expiration of the lease terms.

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BOARD OF REGENTS OF THE UNIVERSITY SYSTEM OF GEORGIA UNIVERSITY SYSTEM OFFICE (OVERSIGHT UNIT) NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2007

EXHIBIT"D"

NOTE 6: LEASE OBLIGATIONS

CAPITAL LEASES The University System Office entered into eight new Capital Lease Obligations in the current year. In September 2006, the University System Office entered into a capital lease of$3,121,998 at 4.15% for technology software licenses and a capital lease of $1,713,003 at 4.15% for PeopleSoft software programs and licenses. In November 2006, December 2006, and February 2007, the University System Office entered into capital leases of $710,280 at 3.83%, $671,975 at 3.8%, and $213,659 at 3.82%, respectively for dark fiber. In January 2007, the University System Office entered into a capital lease of $606,991 at 3.89% for a generator. In April 2007, the University System Office entered into a capital lease of $276,197 at 3.97% for network fiber optic equipment. In June 2007, the University System Office entered into a capital lease of $558,819 at 3.86% for numerous items of equipment. In June 2007, the University System Office completed payments on lease obligation 273, which was for ExLibris software, licenses, implementation and services.

FUTURE COMMITMENTS Future commitments for capital leases, including other installment purchase agreements, are as follows:

Capital Leases

Year Ending June 30: 2008 2009 2010 2011 2012 2013 through 2017 2018 through 2022 2023 through 2025

$ 6,107,859 6,122,589 5,417,480 3,469,393 1,530,710 5,450,772 5,872,030 2,790,191

Total Minimum Lease Payments

$ 36,761,024

Less: Interest

7,702.701

Principal Outstanding

$ 29,058,323

The University System Office had no expense for rental of real property and equipment under operating leases in fiscal year 2007.

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BOARD OF REGENTS OF THE UNIVERSITY SYSTEM OF GEORGIA UNIVERSITY SYSTEM OFFICE (OVERSIGHT UNIT) NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2007

EXHIBIT "D"

NOTE 7: RETIREMENT PLANS

TEACHERS RETIREMENT SYSTEM OF GEORGIA

Plan Description The University System Office participates in the Teachers Retirement System of Georgia (TRS), a cost-sharing multiple-employer defined benefit pension plan established by the Georgia General Assembly. TRS provides retirement allowances and other benefits for plan participants. TRS provides service retirement, disability retirement, and survivor's benefits for its members in accordance with State statute. The Teachers Retirement System of Georgia issues a separate, stand alone financial audit report and a copy can be obtained from the TRS offices or from the Georgia Department of Audits and Accounts.

Funding Policy Employees of the University System Office who are covered by TRS are required by State statute to contribute 5% of their gross earnings to TRS. The University System Office makes monthly employer contributions to TRS at rates adopted by the TRS Board of Trustees in accordance with State statute and as advised by their independent actuary. For fiscal year 2007, the employer contribution rate was 9.28% for covered employees. Employer contributions for the current fiscal year and the preceding two fiscal years are as follows:

Fiscal Year

Percentage Contributed

Required Contribution

2007 2006 2005

100% 100% 100%

$1,787,733 $1,657,223 $1,575,446

EMPLOYEES' RETIREMENT SYSTEM OF GEORGIA

Plan Description The University System Office participates in the Employees' Retirement System of Georgia (ERS), a cost-sharing, multiple-employer defined benefit pension plan established by the General Assembly of Georgia for the purpose of providing retirement allowances for employees of the State of Georgia.

The benefit structure of ERS is defined by State statute and was significantly modified on July 1, 1982. Unless elected otherwise, an employee who currently maintains membership with ERS based upon State employment that started prior to July 1, 1982, is an "old plan" member subject to the plan provisions in effect prior to July 1, 1982. All other members are "new plan" members subject to the modified plan provisions.

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BOARD OF REGENTS OF THE UNIVERSITY SYSTEM OF GEORGIA UNIVERSITY SYSTEM OFFICE (OVERSIGHT UNIT) NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2007

EXHIBIT"D"

NOTE 7: RETIREMENT PLANS
EMPLOYEES' RETIREMENT SYSTEM OF GEORGIA
Plan Description Under both the old plan and new plan, members become vested after 10 years of creditable service. A member may retire and receive normal retirement benefits after completion of 10 years of creditable service and attainment of age 60. Additionally, there are certain provisions allowing for retirement after 25 years of service regardless of age.
Retirement benefits paid to members are based upon a formula which considers the monthly average of the member's highest twenty-four consecutive calendar months of salary, the number of years of creditable service, and the member's age at retirement. Postretirement cost-of-living adjustments are also made to member's benefits. The normal retirement pension is payable monthly for life; however, options are available for distribution of the member's monthly pension at reduced rates to a designated beneficiary upon the member's death. Death and disability benefits are also available through ERS.
In addition, the ERS Board of Trustees created the Supplemental Retirement Benefit Plan (SRBP) effective January 1, 1998. The SRBP was established as a qualified governmental excess benefit plan in accordance with Section 415 of the Internal Revenue Code (IRC) as a portion of ERS. The purpose of SRBP is to provide retirement benefits to employees covered by ERS whose benefits are otherwise limited by IRC 415.
The ERS issues a financial report each fiscal year, which may be obtained through ERS.
Funding Policy As established by State statute, all full-time employees of the State of Georgia and its political subdivisions, who are not members of other state retirement systems, are eligible to participate in the ERS. Both employer and employee contributions are established by State statute. The University System Office's payroll for the year ended June 30, 2007, for employees covered by ERS was $390,602. The University System Office's total payroll for all employees was $23,657,187.
For the year ended June 30, 2007, under the old plan member contributions consist of 6.5% of annual compensation minus $7.00. Of these member contributions, the employee pays the first 1.5% and the University System Office pays the remainder on behalf of the employee.
Under the new plan, member contributions consist solely of 1.5% of annual compensation paid by employee. The University System Office also is required to contribute at a specified percentage of active member payroll determined annually by actuarial valuation for both old and new plans. For the year ended June 30, 2007, the ERS employer contribution rate for the University System Office amounted to 10.41% of covered payroll and included the amounts contributed on behalf of the employees under the old plan referred to above. Employer contributions are also made on amounts paid for accumulated leave to retiring employees.
- 21 -

BOARD OF REGENTS OF THE UNIVERSITY SYSTEM OF GEORGIA UNIVERSITY SYSTEM OFFICE (OVERSIGHT UNIT) NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2007

EXHIBIT"D"

NOTE 7: RETIREMENT PLANS
EMPLOYEES' RETIREMENT SYSTEM OF GEORGIA
Funding Policy Total contributions to the plan made during fiscal year 2007 amounted to $46,699, of which $40,840 was made by the University System Office and $5,859 was made by employees. These contributions met the requirements of the plan.
Actuarial and Trend Information Actuarial and historical trend information is presented in the ERS June 30, 2007 financial report, which may be obtained through ERS.
REGENTS RETIREMENT PLAN
Plan Description The Regents Retirement Plan, a single-employer defined contribution plan, is an optional retirement plan that was created/established by the Georgia General Assembly in O.C.G.A. 4721-1 et.seq. and is administered by the Board of Regents of the University System of Georgia. O.C.G.A. 47-3-68(a) defines who may participate in the Regents Retirement Plan. An "eligible university system employee" is a faculty member or a principal administrator, as designated by the regulations of the Board of Regents. Under the Regents Retirement Plan, a plan participant may purchase annuity contracts from four approved vendors (AIG-VALIC, American Century, Fidelity, and TIAA-CREF) for the purpose of receiving retirement and death benefits. Benefits depend solely on amounts contributed to the plan plus investment earnings. Benefits are payable to participating employees or their beneficiaries in accordance with the terms of the annuity contracts.
Funding Policy The University System Office makes monthly employer contributions for the Regents Retirement Plan at rates adopted by the Teachers Retirement System of Georgia Board of Trustees in accordance with State statute and as advised by their independent actuary. For fiscal year 2007, the employer contribution was 9.66% for the first six months and 8.13% for the last six months of the participating employee's earnable compensation. Employees contribute 5% of their earnable compensation. Amounts attributable to all plan contributions are fully vested and nonforfeitable at all times.
The University System Office and the covered employees made the required contributions of $236,863 (9.66% or 8.13%) and $134,096 (5%), respectively.
AIG-VALIC, American Century, Fidelity, and TIAA-CREF have separately issued financial reports which may be obtained through their respective corporate offices.

- 22 -

BOARD OF REGENTS OF THE UNIVERSITY SYSTEM OF GEORGIA UNIVERSITY SYSTEM OFFICE (OVERSIGHT UNIT) NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2007

EXHIBIT"D"

NOTE 7: RETIREMENT PLANS
GEORGIA DEFINED CONTRIBUTION PLAN
Plan Description The University System Office participates in the Georgia Defined Contribution Plan (GDCP) which is a single-employer defined contribution plan established by the General Assembly of Georgia for the purpose of providing retirement coverage for State employees who are temporary, seasonal, and part-time and are not members of a public retirement or pension system. GDCP is administered by the Board of Trustees of the Employees' Retirement System of Georgia.
Benefits A member may retire and elect to receive periodic payments after attainment of age 65. The payment will be based upon mortality tables and interest assumptions to be adopted by the Board of Trustees. If a member has less than $3,500 credited to his/her account, the Board of Trustees has the option of requiring a lump sum distribution to the member in lieu of making periodic payments. Upon the death of a member, a lump sum distribution equaling the amount credited to his/her account will be paid to the member's designated beneficiary. Benefit provisions are established by State statute.
Contributions Member contributions are seven and one-half percent (7.5%) of gross salary. There are no employer contributions. Contribution rates are established by State statute. Earnings are credited to each member's account in a manner established by the Board of Trustees. Upon termination of employment, the amount of the member's account is refundable upon request by the member.
Total contributions made by employees during fiscal year 2007 amounted to $16,724, which represents 7.5% of covered payroll. These contributions met the requirements of the plan.
The Georgia Defined Contribution Plan issues a financial report each fiscal year, which may be obtained from the ERS offices.
NOTE 8: RISK MANAGEMENT
The University System of Georgia offers its employees and retirees access to two different, selfinsured healthcare plan options - a PPO/PPO Consumer healthcare plan, and an indemnity healthcare plan. The University System Office and participating employees and retirees pay premiums to either of the self-insured healthcare plan options to access benefits coverage. The respective self-insured healthcare plan options are included in the financial statements of the Board of Regents of the University System of Georgia - University System Office. All units of the University System of Georgia share the risk of loss for claims associated with these plans. The reserves for these two plans are considered to be a self-sustaining risk fund. Both selfinsured healthcare plan options provide a maximum lifetime benefit of $2,000,000 per person.
- 23 -

BOARD OF REGENTS OF THE UNIVERSITY SYSTEM OF GEORGIA UNIVERSITY SYSTEM OFFICE (OVERSIGHT UNIT) NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2007

EXHIBIT "D"

NOTE 8: RISK MANAGEMENT

The Board of Regents has contracted with Blue Cross Blue Shield of Georgia, a wholly owned subsidiary of WellPoint, to serve as the claims administrator for the two self-insured healthcare plan products. All claims submitted by program participants are remitted directly to Blue Cross Blue Shield from various organizational units for verification of coverage, processing and payment through a bank account maintained for this purpose by Blue Cross - Blue Shield. Blue Cross - Blue Shield maintains an eligibility file based on information furnished by the various organizational units of the University System of Georgia. In addition to the two different selfinsured healthcare plan options offered to the employees of the University System of Georgia, two fully insured HMO healthcare plan options are also offered to System employees.

Express Scripts is the administrator of the Board of Regents' prescription drug plan. Pharmacy drug claims will be processed in accordance with guidelines established for the Board of Regents' Prescription Drug Benefit Program. Generally, claims are submitted by participating pharmacies directly to Express Scripts for verification, processing and payment. Express Scripts maintains an eligibility file based on information furnished by Blue Cross - Blue Shield on behalf of the various organizational units of the University System of Georgia.

A reconciliation of total estimated claims liabilities for the fiscal years ended June 30, 2007 and June 30, 2006 is shown below:

June 30, 2007

June 30, 2006

Unpaid Claims and Claim Adjustments July 1, 2006

$ 27,983,473

$ 27,583,054

Incurred Claims and Claim Adjustments Expenses - Provisions for Insured Events of the Current Year

264,356,511

245,822,647

Payments - Claims and Claim Adjustments Attributable to Insured Events of the Current Year and of Prior Years

265,192,693

245,422,228

Unpaid Claims and Claim Adjustments June 30, 2006

$ 27,147,291

$ 27,983.473

The Department of Administrative Services (DOAS) has the responsibility for the State of Georgia of making and carrying out decisions that will minimize the adverse effects of accidental losses that involve State government assets. The State believes it is more economical to manage its risks internally and set aside assets for claim settlement. Accordingly, DOAS processes claims for risk of loss to which the State is exposed, including general liability, property and casualty, workers' compensation, unemployment compensation, and law enforcement officers' indemnification. Limited amounts of commercial insurance are purchased applicable to property, employee and automobile liability, fidelity and certain other risks. The University

- 24 -

BOARD OF REGENTS OF THE UNIVERSITY SYSTEM OF GEORGIA UNIVERSITY SYSTEM OFFICE (OVERSIGHT UNIT) NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2007

EXHIBIT "D"

NOTE 8: RISK MANAGEMENT
System Office, as an organizational unit of the Board of Regents of the University System of Georgia, is part of the State of Georgia reporting entity, and as such, is covered by the State of Georgia risk management program administered by DOAS. Premiums for the risk management program are charged to the various state organizations by DOAS to provide claims servicing and claims payment.
A self-insured program of professional liability for its employees was established by the Board of Regents of the University System of Georgia under powers authorized by the Official Code of Georgia Annotated Section 45-9-1. The program insures the employees to the extent that they are not immune from liability against personal liability for damages arising out of the performance of their duties or in any way connected therewith. The program is administered by DOAS as a Self-Insurance Fund.
NOTE 9: CONTINGENCIES
Amounts received or receivable from grantor agencies are subject to audit and adjustment by grantor agencies. This could result in refunds to the grantor agency for any expenditures that are disallowed under grant terms. The amount of expenditures which may be disallowed by the grantor cannot be determined at this time although the University System Office expects such amounts, if any, to be immaterial to its overall financial position.
Litigation, claims and assessments filed against the University System Office (an organizational unit of the Board of Regents of the University System of Georgia), if any, are generally considered to be actions against the State of Georgia. Accordingly, significant litigation, claims and assessments pending against the State of Georgia are disclosed in the State of Georgia Comprehensive Annual Financial Report for the fiscal year ended June 30, 2007.
NOTE 10: POST-EMPLOYMENT BENEFITS OTHER THAN PENSION BENEFITS
Pursuant to the general powers conferred by the Official Code of Georgia Annotated Section 203-31, the Board of Regents of the University System of Georgia has established group health and life insurance programs for regular employees of the University System of Georgia. It is the policy of the Board of Regents to permit employees of the University System of Georgia eligible for retirement or that become permanently and totally disabled to continue as members of the group health and life insurance programs. The policies of the Board of Regents of the University System of Georgia define and delineate who is eligible for these post-employment health and life insurance benefits. Organizational units of the Board of Regents of the University System of Georgia pay the employer portion for group insurance for affected individuals. With regard to life insurance, the employer covers the total cost for $25,000 of basic life insurance. If an individual elects to have supplemental, and/or, dependent life insurance coverage, such costs are borne entirely by the employee.

- 25 -

BOARD OF REGENTS OF THE UNIVERSITY SYSTEM OF GEORGIA UNIVERSITY SYSTEM OFFICE (OVERSIGHT UNIT) NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2007

EXHIBIT "D"

NOTE 10: POST-EMPLOYMENT BENEFITS OTHER THAN PENSION BENEFITS

As of June 30, 2007, there were 76 employees who had retired or were disabled that were receiving these post-employment health and life insurance benefits. For the year ended June 30, 2007, the University System Office recognized as incurred $316,055 of expenditures, which was net of participant contributions of $140,291.

In anticipation of the establishment of an OPEB trust fund beginning July 1, 2007, the Board of Regents of the University System of Georgia has received from its actuary a report of the unfunded actuarial accrued liability and annual required contributions. Results measured as of July 1, 2007, indicate an actuarial accrued liability of $2.5 billion and an actuarially determined annual required contribution of $273.5 million.

NOTE 11: NATURAL CLASSIFICATIONS WITH FUNCTIONAL CLASSIFICATIONS

The University System Office's operating expenses by functional classification for fiscal year 2007 are shown below:

Natural Classification
Salaries Staff
Employee Benefits Travel Scholarships and
Fellowships Utilities Supplies and Other
Services Depreciation
Total Operating Expenses

Instruction

Functional Classification

Research

Public Service

Academic Su1mort

$

909,378 $

175,254 $ 2,011,395 $ 1,756,641

171,375

42,281

475,357

432,784

6,108

74,389

80,411

3,140 2,880,781
$ 3 970 782 $

17,806,767

167,470

78,968,470 200,468

385 005 $ 99 536 846 $

138,379
17,578,338 710,625
20 697 178

Natural Classification
Salaries Staff
Employee Benefits Travel Scholarships and
Fellowships Utilities Supplies and Other
Services Depreciation
Total Operating Expenses

Student Services

Functional Classification

Institutional Su~~ort

Scholarships and Fellowshi~s

Total Operating Ex~enses

$

214,235 $ 18,590,284

43,729

4,677,348

10,532

494,112

$ 23,657,187 5,842,874 665,552

2,556

$ 5,109,222

231,736

231,736 23,060,064

9,573

311,964,553 6,944,702

411,569,185 7,855,795

$

280 625 $ 347 780 22) $

23) 736 $ 472 882 393

- 26 -

BOARD OF REGENTS OF THE UNIVERSITY SYSTEM OF GEORGIA UNIVERSITY SYSTEM OFFICE (OVERSIGHT UNIT) NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2007

EXHIBIT "D"

NOTE 12: AFFILIATED ORGANIZATIONS
In accordance with GASB Statement No. 39, Determining Whether Certain Organizations are Component Units, an amendment of GASB Statement No. 14, The Reporting Entity, which became effective for the year ended June 30, 2004, the University System of Georgia Foundation, Inc. has been determined to be a legally separate, tax exempt organization whose activities primarily support the University System Office of the Board of Regents of the University System of Georgia (an organizational unit of the State of Georgia). The State Accounting Office has determined Component Units of the State of Georgia, as required by GASB Statement No. 39, should be assessed in relation to their significance to the State of Georgia. Accordingly, the University System Office has not included financial activity for the University System of Georgia Foundation, Inc., in these financial statements.

- 27 -

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SUPPLEMENTARY INFORMATION - 29-

BOARD OF REGENTS OF THE UNIVERSITY SYSTEM OF GEORGIA UNIVERSITY SYSTEM OFFICE (OVERSIGHT UNIT) BALANCE SHEET (NON-GMP BASIS) BUDGET FUND JUNE 30, 2007

SCHEDULE "1"

ASSETS
Cash and Cash Equivalents Investments Accounts Receivable
Federal Financial Assistance Other

$ 12,958,995.54 5,570,455.43
482,885.21 859,832.62

Total Assets

$ 19,872,168.80

LIABILITIES AND FUND EQUITY
Liabilities Accounts Payable
Fund Balances Reserved Department Sales and Services Indirect Cost Recoveries Restricted/Sponsored Funds Uncollectible Accounts Receivable Property Sale Unreserved Surplus
Total Fund Balances

$

5,551,093.41

$

2,665,551.93

678,361.87

7, 185,425.80

39,716.59

3,541,404.58

210,614.62

$ 14,321,075.39

Total Liabilities and Fund Balances

$ 19,872,168.80

Actual amounts were prepared on a prescribed basis of accounting that demonstrates compliance with budgetary statutes and regulations of the State of Georgia, which is a comprehensive basis of accounting other than generally accepted accounting principles.
-30-

BOARD OF REGENTS OF THE UNIVERSITY SYSTEM OF GEORGIA UNIVERSITY SYSTEM OF GEORGIA (OVERSIGHT UNIT)
BUDGET COMPARISON AND SURPLUS ANALYSIS REPORT (NON-GAAP BASIS) BUDGET FUND
YEAR ENDED JUNE 30, 2007

SCHEDULE "2"

REVENUES
State Appropriation State General Funds
Federal Funds Other Funds
Total Revenues
EXPENDITURES
Medical College of Georgia Hospitals and Clinics Payments to Georgia Military College Payments to Georgia Public Telecommunications Commission Public Libraries Public Service/Special Funding Initiatives Regents Central Office Research Consortium Teaching
Total Expenditures
Excess of Funds Available over Expenditures
FUND BALANCE JULY 1
Reserved Unreserved
ADJUSTMENTS
Prior Year Payables/Expenditures Prior Year Receivables/Revenues Unreserved Fund Balance (Surplus) Returned
to Office of Treasury and Fiscal Services Year Ended June 30, 2006
Unreserved Fund Balance (Surplus) Returned to Board of Regents - University System Office Year Ended June 30, 2006
FUND BALANCE JUNE 30

BUDGET

ACTUAL

VARIANCEFAVORABLE (UNFAVORABLE)

$ 151,275,848.00 $ 151,275,848.00 $

0.00

23,543,022.00

19,712,963.50

-3,830,058.50

45,251,286.00

27,089,502.91

-18 161 783.09

220,070,156.00 $ 198,078,314.41 $ -21,991,841.59

$

32,272,644.00 $ 32,272,644.00 $

2,660,060.00

2,660,060.00

31,247,434.00

17,023,143.00

46,409,673.00

45,493,454.78

8,658,547.00

8,657,849.03

8,100,801.00

7,946,485.71

2,500,000.00

2,500,000.00

88,220,997.00

77,971,687.08

220,070,156.00 $ 194,525,323.60 $

$ ========0.=00= $ 3,552,990.81 $

0.00 0.00 14,224,291.00 916,218.22 697.97 154,315.29 0.00 10,249,309.92
25,544,832.40
3,552,990.81

10,672,071.10 34,310.13

116,013.48 -20,000.00
-1,482,141.25
1447831.12 $ 14,321,075.39

SUMMARY OF FUND BALANCE
Reserved Department Sales and Services Indirect Cost Recoveries Restricted/Sponsored Funds Uncollectible Accounts Receivable Property Sale
Total Reserved
Unreserved Surplus
Total Fund Balance
Actual amounts were prepared on a prescribed basis of accounting that demonstrates compliance with budgetary statutes and regulations of the State of Georgia, which is a comprehensive basis of accounting other than generally accepted accounting principles.
- 31 -

$ 2,665,551.93 678,361.87
7,185,425.80 39,716.59
3,541,404.58 $ 14,110,460.77
210,614.62
$ 14,321,075.39

(This page left intentionally blank)

BOARD OF REGENTS OF THE UNIVERSITY SYSTEM OF GEORGIA UNIVERSITY SYSTEM OFFICE (OVERSIGHT UNIT) SCHEDULE OF APPROVED BUDGET YEAR ENDED JUNE 30, 2007

SCHEDULE "3"

REVENUES
State Appropriations Other Revenues Retained

ORIGINAL APPROPRIATION

FINAL APPROVED
BUDGET

LESS: BUDGET TRANSFERS TO OTHER UNITS

TOTAL

$ 1,920,488,461.00 $ 1,933,295,452.00 $

2,920,875,905.00

3,228,368,843.00

1,782,019,604.00 $ 3,159,574,535.00

151,275,848.00 68,794,308.00

$ 4,841,364,366.00 $ 5,161,664,295.00 $ 4,941,594.139.00 $

220,070,156.00

EXPENDITURES
Advanced Technology Development Center/Economic Development Institute
Agricultural Experiment Station Athens and Tifton Veterinary Laboratories Cooperative Extension Service Forestry Cooperative Extension Forestry Research Georgia Radiation Therapy Center Georgia Tech Research Institute Marine Institute Marine Resources Extension Center Medical College of Georgia Hospitals
and Clinics Office of Minority Business Enterprise Payments to Georgia Cancer Coalition Payments to Georgia Military College Payments to Georgia Public
Telecommunications Commission Public Libraries Public Service/Special Funding Initiatives Regents Central Office Research Consortium Skidaway Institute of Oceanography Student Education Enrichment Program Teaching Veterinary Medicine Experiment Station Veterinary Medicine Teaching Hospital

$

27,447,215.00 $

28,697,215.00 $

72,948,126.00

78,258,188.00

4,737,054.00

6,237,054.00

56,648,411.00

65,445,620.00

659,442.00

1,121,275.00

3,134,341.00

6,261,341.00

3,625,810.00

3,625,810.00

130,466,440.00

138,720,640.00

1,711,549.00

1,759,290.00

2,713,007.00

3,865,007.00

32,272,644.00 860,161.00
9,982,554.00 2,660,060.00

32,272,644.00 860,161.00
9,982,554.00 2,660,060.00

31,247,434.00 40,477,906.00 30,968,591.00
7,984,377.00 20,985,781.00
7,292,073.00 308,315.00
4,341,793,771.00 3,249,577.00 7189 727.00

31,247,434.00 46,409,673.00 32,417,559.00
8,100,801.00 26,925,251.00
7,292,073.00 308,315.00
4,613,946,753.00 3,249,577.00
12,000,000.00

28,697,215.00 $ 78,258,188.00
6,237,054.00 65,445,620.00
1,121,275.00 6,261,341.00 3,625,810.00 138,720,640.00 1,759,290.00 3,865,007.00
0.00 860,161.00 9,982,554.00
0.00
0.00 0.00 23,759,012.00 0.00 24,425,251.00 7,292,073.00 308,315.00 4,525,725,756.00 3,249,577.00 12,000,000.00

0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
32,272,644.00 0.00 0.00
2,660,060.00
31,247,434.00 46,409,673.00
8,658,547.00 8,100,801.00 2,500,000.00
0.00 0.00 88,220,997.00 0.00 0.00

$ 4,841,364,366.00 $ 5,161,664,295.00 $ 4,941,594,139.00 $

220,070,156.00

See notes to the financial statements.

33 -

BOARD OF REGENTS OF THE UNIVERSITY SYSTEM OF GEORGIA UNIVERSITY SYSTEM OFFICE (OVERSIGHT UNIT)
SCHEDULE OF ALLOTMENTS TO UNITS OF THE UNIVERSITY SYSTEM OF GEORGIA YEAR ENDED JUNE 30, 2007

RESEARCH INSTITUTIONS
Georgia Institute of Technology Georgia State University Medical College of Georgia University of Georgia
REGIONAL UNIVERSITIES
Georgia Southern University Valdosta State University
STATE UNIVERSITIES
Albany State University Armstrong Atlantic State University Augusta State University Clayton State University Columbus State University Fort Valley State University Georgia College and State University Georgia Southwestern State University Kennesaw State University North Georgia College and State University Savannah State University Southern Polytechnic State University University of West Georgia
STATE COLLEGES
Abraham Baldwin Agricultural College Dalton State College Gainesville State College Georgia Gwinnett College Gordon College Macon State College Middle Georgia College
TWO-YEAR COLLEGES
Atlanta Metropolitan College Bainbridge College Coastal Georgia Community College Darton College East Georgia College Georgia Highlands College Georgia Perimeter College South Georgia College Waycross College
OTHER
Skidaway Institute of Oceanography

ADVANCED TECHNOLOGY DEVELOPMENT CENTER/ECONOMIC DEVELOPMENT
INSTITUTE

AGRICULTURAL EXPERIMENT STATION

ATHENS AND TIFTON
VETERINARY LABORATORIES

COOPERATIVE EXTENSION SERVICE

$

14,572,215.00

$ 40,506,864.00 $

83,084.00 $ 33,554,274.00

$

14,572,215.00 $ 40,506,864.00 $

83,084.00 $ 33,554,274.00

See notes to the financial statements.

-34-

SCHEDULE "4"

FORESTRY COOPERATIVE
EXTENSION

FORESTRY RESEARCH

GEORGIA TECH RESEARCH INSTITUTE

MARINE INSTITUTE

MARINE RESOURCES EXTENSION
CENTER

$ 7,548,482.00

$

659,442.00 $ 3,134,341.00

$

943,916.00 $

1,528,207.00

$

659,442.00 $ 3,134,341.00 $ 7,548,482.00 $

9431916.00 s ...,,_.1...s..2.s._.2,i,01=.oo=-

-35-

BOARD OF REGENTS OF THE UNIVERSITY SYSTEM OF GEORGIA UNIVERSITY SYSTEM OFFICE (OVERSIGHT UNIT)
SCHEDULE OF ALLOTMENTS TO UNITS OF THE UNIVERSITY SYSTEM OF GEORGIA YEAR ENDED JUNE 30, 2007

OFFICE OF MINORITY BUSINESS ENTERPRISE

PAYMENTS TO GEORGIA
CANCER COALITION

RESEARCH INSTITUTIONS

Georgia Institute ofTechnology Georgia State University Medical College of Georgia University of Georgia

$ $ 9,982,554.00

$

459,315.00

REGIONAL UNIVERSITIES

Georgia Southern University Valdosta State University

STATE UNIVERSITIES

Albany State University Armstrong Atlantic State University Augusta State University Clayton State University Columbus State University Fort Valley State University Georgia College and State University Georgia Southwestern State University Kennesaw State University North Georgia College and State University Savannah State University Southern Polytechnic State University University of West Georgia

91,931.00 153,218.00

STATE COLLEGES

Abraham Baldwin Agricultural College Dalton State College Gainesville State College Georgia Gwinnett College Gordon College Macon State College Middle Georgia College

TWO-YEAR COLLEGES

Atlanta Metropolitan College Bainbridge College Coastal Georgia Community College Darton College East Georgia College Georgia Highlands College Georgia Perimeter College South Georgia College Waycross College

155,697.00

OTHER

Skidaway Institute of Oceanography

PUBLIC SERVICE/ SPECIAL FUNDING INITIATIVES

RESEARCH CONSORTIUM

SKIDAWAY INSTITUTE OF OCEANOGRAPHY

1,039,086.00 $ 136,456.00
10,897,268.00 769,037.00

17,652,564.00 933,706.00 90,000.00
3,892,189.00

827,825.00 52,630.00

401,197.00

437,471.00 295,663.00 213,257.00
28,319.00 23,479.00 1,808,088.00 1,365,884.00 139,675.00 452,792.00 857,089.00 457,768.00 10,613.00 81,743.00

549,705.00
249,038.00 131,852.00

165,076.00 69,261.00
9,614.00 1,000,000.00
263,923.00 435,196.00 509,183.00

6,485.00 3,650.00 192,927.00 209,802.00 737,042.00 194,431.00 57,319.00 3,778.00 7,182.00
_ _ _ _ _ _ _ s_ _ _-'-1"',e-"-34-"'-=-01'"'3"'.o'"'o'-

$

860,161.00 $ 9,982,554.00 $

23,759,012.00 $

23,900,2s1.oo s ====1=,6=34==01=3=00==

See notes to the financial statements.

-36

SCHEDULE "4"

STUDENT EDUCATION ENRICHMENT PROGRAM

TEACHING

VETERINARY MEDICINE
EXPERIMENT STATION

VETERINARY MEDICINE TEACHING HOSPITAL

TOTAL

$

$

308,315.00

211,757,195.00 190,717,286.00 130,738,763.00 348,051,647.00 $

3,249,577.00 $

$ 489,727.00

252,589,542.00 201,770,002.00 142,034,348.00 437,321,620.00

84,727,867.00 49,597,653.00

85,958,889.00 49,650,283.00

20,673,363.00 30,579,213.00 26,104,109.00 23,010,471.00 34,666,311.00 19,983,089.00 28,513,258.00 12,088,205.00 74,328,664.00 22,220,205.00 17,448,594.00 19,942,761.00 44,585,197.00

21,202,765.00 31,424,581.00 26,470,584.00 23,038,790.00 34,689,790.00 21,791,177.00 29,879,142.00 12,227,880.00 75,030,494.00 23,077,294.00 17,906,362.00 20,085,226.00 44,646,940.00

13,423,954.00 12,610,703.00 17,863,653.00 9,945,548.00 11,292,919.00 19,373,710.00 11,588,038.00

13,589,030.00 12,679,964.00 17,873,267.00 10,945,548.00 11,558,842.00 19,808,906.00 12,097,221.00

7,654,040.00 8,674,057.00 9,855,373.00 14,971,515.00 4,781,765.00 12,870,983.00 59,806,670.00 6,432,178.00 3,440,363.00

7,818,222.00 8,677,707.00 10,048,300.00 15,181,317.00 5,518,807.00 13,065,414.00 59,863,989.00 6,435,958.00 3,447,545.00

1,005,789.00

2,639,862.00

$

308,315.00 $

1,615,305,109.00 $

3,249,577.00 $

489,121.00 $===1..,.1,..82.,,..0.1.s...6..0..4...,..oo..,

-37-

BOARD OF REGENTS OF THE UNIVERSITY SYSTEM OF GEORGIA UNIVERSITY SYSTEM OFFICE (OVERSIGHT UNIT)
ANALYSIS OF PRIOR YEAR'S SURPLUS FUNDS COLLECTED FROM INSTITUTIONS AND REDISTRIBUTED TO INSTITUTIONS WITH DEFICITS YEAR ENDED JUNE 30, 2007

SCHEDULE "5"

RESEARCH INSTITUTIONS
Georgia State University Medical College of Georgia University of Georgia
REGIONAL UNIVERSITIES
Georgia Southern University Valdosta State University
STATE UNIVERSITIES
Albany State University Augusta State University Columbus State University Fort Valley State University Georgia College and State University Georgia Southwestern State University North Georgia College and State University Southern Polytechnic State University
STATE COLLEGES
Abraham Baldwin Agricultural College Dalton State College Georgia Gwinnett College Gordon College Macon State College Middle Georgia College
TWO-YEAR COLLEGES
Atlanta Metropolitan College Bainbridge College Coastal Georgia Community College East Georgia College Georgia Perimeter College South Georgia College Waycross College
Current Funds - Unrestricted Surplus

COLLECTED

REDISTRIBUTED

$

1,059,022.00

119,810.00

294,863.00

75,833.00 149,514.00

51.00 4,573.00 93,004.00
$
45,505.00 238.00
8,271.00 97,364.00

1,179,828.00

14,985.00 19,885.00
2,000.00 30,382.00
7,868.00 29,486.00

58,428.00 89,255.00
103.00 29,750.00 387,311.00
9,816.00 342.00

$

2,627,659.00 $

1,179,828.00

1,447,831.00

$

2,627,659.00 $ ===2..,,6=27..,,6=5=9.=00=

See notes to the financial statements.

- 38-

BOARD OF REGENTS OF THE UNIVERSITY SYSTEM OF GEORGIA UNIVERSITY SYSTEM OFFICE (OVERSIGHT UNIT) RECONCILIATION OF SALARIES AND TRAVEL
YEAR ENDED JUNE 30, 2007

SCHEDULE "6"

Totals per Annual Supplement

Compensated Absences
June 30, 2007 June 30, 2006

Adjustment

Shared Services on Jointly Staffed Personnel

Georgia Institute of Technology

Chalasani,

Kanti

Unidentified Variance

SALARIES
$ 23,445,251.00 $

TRAVEL
665,552.00

2,479,320.00 -2,277,025.00

9,360.00 281.00

$ 23,657,187.00 $ ===6=6=5,=55=2=.0=0

- 39-

SECTION II CURRENT YEAR FINDINGS AND QUESTIONED COSTS

BOARD OF REGENTS OF THE UNIVERSITY SYSTEM OF GEORGIA UNIVERSITY SYSTEM OFFICE (OVERSIGHT UNIT) SCHEDULE OF FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2007
FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS No findings were reported. FEDERAL AWARD FINDINGS AND QUESTIONED COSTS No findings were reported.